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Term Insurance with Staggered Payout Option: Should You Go for It?

The term plan meaning is an agreement between you and an insurance company, stating that they will take care of your nominees’ financial needs in your absence. It is an affordable option, offering substantial payout. This is why a term life insurance policy has become a trusted choice among Indians. Most insurance companies in India offer the sum assured in two forms: lump sum and staggered payouts. Read on to understand what a staggered payout is and if you need it.

What is a staggered payout?

A term life insurance policy offers a substantial lump sum, which inexperienced beneficiaries may find difficult to manage. When you purchase a term plan, the goal is to ensure that the insurer will cover the financial needs of your loved ones. If you are not confident that the family members will be able to handle a large amount, the staggered payout option will suit them the best.

If you choose the staggered payout option, the insurance company pays the death benefit periodically. The nominees get a percentage of the benefit as a lump sum and the insurer pays the rest in installments over a fixed period. You can select the staggered payment tenure according to your needs.

How it is different from a lump sum payout

Term insurance plans in India most commonly offer a lump sum when the nominees make a successful policy claim. While the staggered payout comes in the form of installments over a long period, the insurance providers pay the lump sum benefit at once. It is a huge sum that the nominees can use as per their needs.

Insurers offer staggered payouts periodically and extend multiple payment choices with this alternative.

Staggered payout option

The most common staggered payout choices include:

  • Monthly income

After paying a portion of the policy benefit as a lump sum, the insurance provider pays the rest in monthly installments. The amount is pre-determined, and the nominees get it for a pre-fixed tenure.

  • Increasing monthly income

This option is best if you are worried about inflation. This type of monthly staggered payout option offers to increase the amount by 10% to 20% annually. If you choose this alternative, it will ensure that the rising expenses do not affect your loved ones.

When to consider the staggered payout option

When you buy term insurance, you need to first decide which alternative is more suitable for the nominees; a lump sum or a staggered payout. Here is a list of instances when a staggered payout can be more helpful:

  • When you think that your family will not be able to properly manage a lump sum at once, a staggered payout option will serve them the best; it will allow them to pay for regular expenses without having to worry about managing a fortune

  • When you want your loved ones to have a regular source of income in your absence, you may select the staggered payout option; however, it is suitable only to cover monthly household expenses. If you have debts or any other form of financial liability, the staggered payout option may not be the right choice. In that case, a lump sum policy benefit can serve the nominees better

  • When you have liabilities that require regular payments, the staggered payout option can prove useful for your family. For example, your children’s education requires monthly tuition fees. Your family can manage the requirement better with a steady income. Additionally, this alternative is suitable to cover monthly bills or shopping expenses

Once you determine which payout option is more suitable for the family’s needs, buy term insurance accordingly. Purchasing it from the insurer’s website will help you find an appropriate plan faster and complete the process from the comfort of your home.

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